HP forecasts split-related costs below expectations

Abhirup Roy, Anya George Tharakan

3 Min Read

The Hewlett-Packard (HP) logo is seen as part of a display at the Microsoft Ignite technology conference in Chicago, Illinois, May 4, 2015. REUTERS/Jim Young

(Reuters) - Hewlett-Packard Co (HPQ.N), which is in the process of splitting itself, forecast separation-related costs below the expectation of several analysts and reported a better-than-expected quarterly profit.

The world’s No. 2 personal computer maker, whose shares rose more than 3 percent in extended trading on Thursday, kept its profit forecast unchanged for the full year, allaying fears of a strong dollar and weak enterprise demand for its services.

The 75-year-old company said it expects $400 million-$450 million of costs from the planned separation of its computer and printer businesses from its faster-growing corporate hardware and service operations.

“I thought it could be a little higher than that,” FBN Securities analyst Shebly Seyrafi said. There was some excitement about the costs being less than expected, he said.

The forecast soothed investor concerns about costs for the breakup in the first year, Cross Research analyst Shannon Cross said.

Ongoing cost reductions and HP’s focus on higher-margin sales were driving profit, Cross said. Total costs and expenses fell 5.7 percent to $24 billion in the second quarter ended April 30.

“I think the Street was expecting higher expenses,” Seyrafi said.

In February, HP — which gets nearly two-thirds of its revenue from outside the United States — forecast full-year earnings well below analysts’ estimates, citing a strong dollar.

Up to Thursday’s close, the dollar .DXY had risen 19 percent against a basket of major currencies in the past year.

HP’s net income fell to $1.01 billion, or 55 cents per share, from $1.27 billion, or 66 cents per share a year earlier.

Excluding items, the company earned 87 cents per share. Analysts on average had expected a profit of 85 cents, according to Thomson Reuters I/B/E/S.

Sales across most of HP’s product lines fell, dragging its total revenue down 6.8 percent to $25.45 billion. Its enterprise services unit, which accounts for about a fifth of total revenue, suffered the most with a 16 percent drop.

The company forecast an adjusted profit of 83-87 cents per share for the third quarter. Analysts were expecting 87 cents.

HP also said Cathie Lesjak will become the Chief Financial Officer of HP Inc, while Tim Stonesifer will become the CFO of Hewlett Packard Enterprise.

Reporting by Abhirup Roy and Anya George Tharakan in Bengaluru; Editing by Joyjeet Das